Swap Till You Drop: How 1031 Deferral Becomes Elimination

The Three Ways Deferred Tax Comes Due — and the One Way It Doesn't

Sell the replacement property without exchanging and the deferred gain lands that year. Hold it and you pay incrementally through smaller depreciation deductions. Die holding it — and under current law your heirs' basis resets to market value, erasing the deferred gain entirely.

That's what turns 1031 from a delay tactic into an estate strategy: each exchange moves you into a stronger asset while the tax bill rides behind you, and the finish line makes it vanish.

• Every exchange compounds pre-tax dollars instead of after-tax dollars
• Depreciation restarts only on new value added — plan around it
• Estate law can change; the strategy rests on current step-up rules — coordinate with your estate planner

Do heirs owe the deferred capital gains?

No. Under current law, inherited property takes a fair-market-value basis at death. The deferred gain is eliminated, not passed on.

How many times can I 1031?

No limit. Each exchange rolls basis and deferred gain into the next property, indefinitely.

Doesn't estate tax catch it instead?

The property is in the taxable estate, but current exemptions are high. Whether estate tax touches you is a planning question — the income-tax step-up applies either way.